Tutorial 3

# Tutorial 3 - years. The scholarships are to have a value of...

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Tutorial 3

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Example 1 Suppose that you have an opportunity to invest in a fund that pays 12% interest rate. Today, you invest \$10,000 into this fund. Three years later (year 3), you borrow \$5,000 from a local bank at 10% interest rate and invest it in the fund. Two years later (year 5), you withdraw enough money from the fund to repay the bank loan and all interest due on it. Three years from this withdrawal (year 8), you start taking \$2,000 per year out of the fund for 4
Example 2 A wealthy industrial economist dies, and her will specifies that \$10 million of her estate will go to University of Waterloo (UW) to fund a small engineering economy building as well as 20 graduate scholarships per year over the next 20

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Unformatted text preview: years. The scholarships are to have a value of \$24,000 (per each scholarship) per year for the first year and this should increase at a rate of \$3,000 per year over the following 19 years. UW requires that Example 3 • A new water line is required to meet the needs of the growing city of Idiom for the next 10 years. Two alternative plans will satisfy the water requirement: an 8 inch pipe installed now, with another 8 inch pipe added in 5 years; or a 12 inch pipe installed now to serve by itself for all 10 years. Assuming a 10-year planning period and an interest rate of 10%, recommend the better alternative. Use the annual worth method....
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## This note was uploaded on 04/01/2012 for the course MSCI 261 taught by Professor Bonkoo during the Winter '09 term at Waterloo.

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Tutorial 3 - years. The scholarships are to have a value of...

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